HOSPITALS: Tri-City looking for new refinancing option

OCEANSIDE -- For the second time in several weeks, Tri-City
Medical Center is looking for a bank to help it refinance $58
million in outstanding construction bonds that are grinding away at
the public hospital's profit margin.

On Thursday, hospital directors granted interim chief executive
Larry Anderson negotiating authority to work with banks on the
refinancing deal and promised an emergency meeting at any time of
the day or night to approve final loan documents.

Anderson said he is already in talks with Torrey Pines Bank of
La Jolla and several other financial institutions that may be
interested in floating the note.

The hospital's previous plan to obtain a loan from financier
MidCap Financial fell through at the last minute, forcing the
hospital to seek other options.

Anderson said Tri-City continues to pay a 14.5 percent interest
rate on outstanding debt and said in a previous meeting that the
rate is costing the hospital $700,000 a month in interest
payments.

MidCap is the second lender to back away from a refinancing deal
with the hospital. In April, investment bank Morgan Stanley
declined to refinance part of Tri-City's bonds. Anderson said at
the time that the firm was concerned the loan couldn't be
adequately secured because the hospital district is a governmental
entity.

Anderson said Friday that Midcap withdrew its loan offer because
it also was "uncomfortable" with the process it would have to use
to recoup its investment if Tri-City ever defaulted. Private
lenders, he said, must go to court in order to take over any assets
of a public agency, including a hospital district such as
Tri-City.

In 2007, the hospital board -- on the advice of then-chief
executive Arthur Gonzalez and Citigroup investment bankers -- voted
to refinance bonds originally issued for various hospital
construction projects as auction-rate securities. On the hospital's
behalf, Citigroup sold Tri-City's bonds in weekly auctions, turning
long-term debt into a series of constantly recurring short-term
investments.

At the time, it looked like adopting short-term auctions would
deliver markedly lower interest rates for the hospital.

However, investors began demanding much higher interest when the
nation entered its current financial slump and sub-prime mortgage
defaults sparked an international credit collapse.

At Thursday's meeting, Anderson said Tri-City is starting to see
a turnaround, even though the hospital stands to lose between $4
million and $6 million in the coming budget year, which starts on
July 1. The budget for the current fiscal year is about $319
million.

"There are green shoots -- as (federal reserve chairman) Ben
Bernanke would say -- all over the place," Anderson said.

Anderson said he and the hospital's finance department have
begun more aggressive efforts to collect money owed to Tri-City by
insurance companies and patients. In May, he said, the hospital
collected $20.5 million.

"That's more than this hospital has ever collected in a single
month in 50 years," Anderson said.

Tri-City expects to end this fiscal year about $8 million in the
red, according to a memo released recently by the hospital's
finance director.

In addition to unbudgeted interest costs, the hospital is
suffering from a drop in revenue associated with more than 50
doctors affiliating with Scripps Health and shifting patients to
Scripps Memorial Hospital in Encinitas. Since January, Tri-City has
seen a 30 percent drop in surgery volume, according to monthly
finance reports presented to the board. Anderson said that so far
in May, that number has shrunk to 26 percent.

"You can clearly see an improving trend in volume in May,"
Anderson said.

Call staff writer Paul Sisson at 760-901-4087.

CEO firms up executive team

Larry Anderson, Tri-City Medical Center's Interim CEO, named a
slate of executive officers for the hospital Friday. Most of the
executives had acted in an interim capacity since December, when
Tri-City's board of trustees suspend eight of the hospital
district's former top executives.

The executives named Friday include:

- Chief Operating Officer: Sandra Hookana.

- Interim Chief Nurse Executive: Joy Gorzeman.

- Chief Financial Officer: Reid Hollyfield.

- Vice President: Debbie King.

- Vice President of Human Resources: Schahrzade Rezvini.

- Vice President of Support Services: Joseph Kasper.

- Vice President of Public Affairs and Marketing: Jeff
Segall.

- Vice President of Quality and Service Improvement: Michael
DeMott.

- Vice President of Strategic Planning and Business Development:
Donald Dawkins.